Lagging investment in information and communications has been identified as a possible cause of Canda’s weak labour productivity growth and the growing gap between Canadian and U.S. productivity.
A new study by the Centre for the Study of Living Standards notes that virtually no growth of labour productivity in the Canadian business sector occurred in 2003 and 2004.
The study found that in 2004, current dollar investment in information and communications per worker in the Canadian business sector was 45.1% of the United States.
ICT investment in the Canadian business sector, as a share of GDP, was 61.6% of the U.S. level in the same period.
This disproportionately low investment applied to all three ICT asset types – software, communications equipment and computers.
The study identified the factors that have caused this investment gap. These include:
- The industrial structure of Canada versus the United States. Canada has smaller shares of ICT intensive sectors, such as the cultural and information industry (including telecommunications and finance).
The size distribution of employment. Canada has a larger share of employment in small and medium sized enterprises. SMEs typically spend less on ICT than larger firms.
CSLS estimates that these two factors explain about 20% of the gap. Gaps in Canadian statistical reporting of ICT investment in some sectors account for a further 2%.
The report also notes that lower Canadian labour compensation costs contribute to the gap. While ICT prices are relatively similar in both countries, the lower (by an estimated 20%) cost of labour in Canada makes firms more reluctant to substitute labour for capital by adopting ICTs than their U.S. counterparts.
The study identifies other factors contributing to the gap, such as the lower proportion of Canadian managers with university education.
“An understanding of the causes of the Canada-U.S. ICT investment gap is crucial for a correct diagnosis of Canada’s productivity problem and the development of effective policies to reverse this situation,” Andrew Sharpe, executive director of CSLS, says.
The CSLS is a national, independent, not-for-profit research organization. Its objectives are twofold: to contribute to a better understanding of trends and determinants of productivity, living standards, and economic well-being in Canada through research and; to contribute to public debate by developing and advancing specific policies to improve the standard of living in Canada.
The complete study can be found on the CSLS Web site.
http://www.csls.ca